People (and organizations) often transfer value to others. Such value transfers are typically accomplished by providing value from a sender's account at a first financial institution to a recipient's account at a second financial institution. For example, a sender's account can be reduced by the value, and the recipient's account can be increased by the value.
A reduction in the sender's account value results in a gain for the first financial institution (e.g., because a liability is reduced), and an increase in the recipient's account results in a loss (e.g., because a liability is increased). In order to correct for these gains and losses at the financial institutions, the financial institutions can engage in an equal and opposite transaction. For example, the first and second financial institutions may have a correspondent bank relationship, where the first financial institution has an account at the second financial institution, and/or vice versa. The equal and opposite transaction can include debiting the first financial institution's account at the second financial institution by the same value that is credited to the recipient's account (thereby eliminating any net balance change for the second financial institution).
This type of correspondent bank relationship is typically used for international wiring of funds. However, most financial institutions only have a few correspondent bank relationships. Thus, for an international wire, it is likely that the sending financial institution does not have a direct correspondent bank relationship with the receiving financial institution. Accordingly, the first financial institution may have to indirectly transfer the value to the second financial institution. For example, the first financial institution may transfer the value to a third (intermediary) financial institution with which it has a correspondent bank relationship, and the third financial institution may then be able to transfer the value to the second financial institution. This type of indirect path is common for international transfers. For example, an international transfer may involve one or more domestic transfers in the sender's country, an international transfer, and one or more domestic transfer's in the recipient's country before finally reaching the recipient's account.
As an example, a typical international wire transfer may take place in the following manner. At step 1, Alice receives an invoice from Bob. The invoice includes a requested payment amount and information identifying Bob's English bank account. At step 2, Alice (located in the United States) instructs her American bank to send a wire fund transfer to Bob's English bank account. Alice's bank and Bob's bank do not have a direct correspondent relationship, so intermediary banks are needed. At step 3, Alice's bank sends a payment initiation message to an American correspondent bank associated with Alice's bank. For example, Alice's bank sends an MT 103 message through the Society for Worldwide Interbank Financial Telecommunication (SWIFT). The SWIFT message (e.g., an MT 103 message) instructs the American correspondent bank to pay Bob's bank a certain number of British pounds. At step 4, the American corresponding bank charges Alice's bank for the US Dollar equivalent of the amount of British pounds. For example, Alice's bank may have a correspondent account at the correspondent bank, and this account may be charged the US dollar equivalent. This charge event can be considered settlement between the correspondent bank and Alice's bank. At step 5, the American correspondent bank sends a payment instruction through SWIFT (e.g., an MT 103 message) for a payment to a next correspondent bank, this next correspondent bank residing in England. This payment instruction also requests that a payment be made to Bob's bank in order to credit Bob's account. At step 6, the English correspondent bank charges the American correspondent bank. For example, the American correspondent bank may have a correspondent account (e.g., a “nostro” account) at the English correspondent bank, and this account may be charged in British pounds. This charge event can be considered settlement between the American correspondent bank and the English correspondent bank. At step 7, the English correspondent bank sends a payment instruction through SWIFT (e.g., an MT 103 message) for a payment to Bob's bank through a local British wire system. At step 8, the Bob's bank charges the English correspondent bank. For example, the English correspondent bank may have a correspondent account at Bob's bank, and this account may be charged in British pounds. This charge event can be considered settlement between the English correspondent bank and Bob's bank. At step 9, Bob's bank credits Bob's account with the fund transfer amount (which may be reduced). At this point, Bob may be able to access the funds sent by Alice.
While this example shows the fund transfer reaching Bob, the transfer may have taken a long time (e.g., 3-7 days). Because of uncertainty in the system, each correspondent bank does not send the next payment instruction to the next bank until the funds are received during settlement. Also, each settlement step may be deferred until a net settlement process at the end of a day. Accordingly, each correspondent bank may add an extra day for the funds transfer. Time delays can be exacerbated by unsynchronized banking hours in different countries due to different time zones. Further, the funds may have been significantly reduced (by an unpredictable amount) during the transfer process, as fees may be charged for each SWIFT message, by each correspondent bank, and for foreign currency exchange. Also, in reality, there can be many more intermediary correspondent banks then described in this example.
Each of the corresponding banks may have different transfer agreements, and these agreements may not be visible to the other banks. Additionally, multiple regional wire transfer networks may be used, each potentially having different rules and protocols. Accordingly, Alice's bank may be unaware of how much time the transfer will take, the rules governing each transfer step (e.g., what information the banks may be forwarding along), the status of a pending transfer (e.g., confirmation messages may not be provided), whether the corresponding banks will correctly record the details of the transaction, and whether the transfer will even successfully reach Bob's account. Also, Alice and her bank may wish to include information with the transaction, but it may not be possible to reliably carry that data through to the receiving party. Thus, after Alice's bank sends the first funds transfer to the first correspondent bank, and Alice's bank is no longer in control, and just has to hope that the fund transfer will be completed appropriately. If a problem occurs (for example, a payment is not received or is delayed), the Alice and her bank may not be able to trace the transaction quickly or reliably.
Accordingly, international wire transfers are completed over a decentralized and non-uniform network of correspondent banking relationships. Each additional link in the chain of correspondent banks increases time, uncertainty, insecurity, cost, and inefficiency. Further, it is difficult to change the system, as the entire system can only change by renegotiating each specific correspondent bank agreement.
Embodiments of the invention address these and other problems individually and collectively.